Moving beyond performance – Money Marketing


Mag-glass-soloAdvisers often talk the talk about the importance of moving beyond market performance, but do they walk the walk?

The modern adviser, which has emerged from the rules and regulations created from the RDR, is no longer focused on product pushing.

And no doubt long before the RDR even came into being, many advisers would have distanced themselves from being considered a ‘salesman’.

But whether because of a movement bubbling away prior to the RDR or as a result of the RDR itself, there now tends to be a greater focus on a more holistic financial planning model.

Advisers seem to have come to the realisation there is very little point in placing their principal value in investment returns they have limited control over.

Financial advisers ‘give people their lives back’

Conversations between industry professionals show a desire to move away from being obsessed with whether the line goes up or down and more towards working out how best to coach a client and support them with a financial plan that’s as robust as possible.

But has this new take filtered down to the paying clients? Do they understand the true value an adviser can offer, or do they just expect the green line to keep going up because they have paid someone to look after their money?

Do clients understand the purpose of defining life goals and making the most of their money, rather than just making more of it, and that the worth of the post-RDR planner is found in the plan and not the product?

And if clients don’t understand all of this, have advisers been doing a good enough job of explaining it?

Bridging the disconnect

A Morningstar study last year found advisers and clients are not always on the same page. To see if advisers know what clients want, researchers Sam Lamas, Ryan Murphy and Ray Sin asked two groups to rank 15 attributes of financial advisers in order of importance. The first was a group of investors who were asked: “What do you value most when selecting a financial adviser?” Meanwhile, a group of advisers were asked what they thought investors value most when working with a financial adviser.

In a blog post about the research towards the end of 2019, Elizabeth Brigham, who leads the marketing team for the Morningstar software product group, wrote: “In a perfect world, advisers and investors would be completely aligned about which adviser offerings the investor finds valuable.

“However, findings from Morningstar’s research team suggest a substantial disconnect between what advisers think investors value and what investors actually value.”

The study’s results suggested that investors seemed to ‘undervalue’ adviser offerings related to behavioural coaching, such as ‘Acts as a coach/mentor to keep me on track’. The option ‘Can help me maximise my returns’ was ranked as the fourth most important attribute by investors, while for advisers it was the second least important.

Advisers ranked ‘Understands me and my unique needs’ as the most important attribute, but for investors it came about halfway in their list of priorities.

Leader: Advisers need to stop ‘green line syndrome’ before it’s too late

Advisers can do better

So there is clearly room for improvement in getting the message out to clients to address the disconnect.

Brigham said: “If investors are undervaluing certain adviser offerings, then advisers need to add an educational component to the way they market themselves in order to appropriately bridge that gap and demonstrate the value of those offerings.”

She suggests there is an opportunity for advisers “more than ever” to demonstrate that “empowering smart financial decisions starts with good advice”.

Meanwhile, Morningstar head of behavioural science Stephen Wendel argues the disconnect on maximising returns shouldn’t come as a surprise.

He explains: “For years, professional financial advice was promoted as a way to beat the market and changing the ‘returns first’ perception won’t happen overnight.

“But this is still a real problem. Why? Because it means that a significant subset of investors may be expecting their advisers to take on inappropriate levels of risk or to handpick stocks in a likely fruitless effort to beat the market. Those investors are either likely to be disappointed by their adviser (in aggregate, we can’t all beat the market), or by what happens when risk’s downside is felt. A more thoughtful approach is often to focus on goals and what’s required to meet them.”

While the change may not happen overnight, Ovation Finance chairman and chairman of the recently launched Initiative for Financial Wellbeing Chris Budd presents a more controversial view.

As a firm believer that financial advice should be about making people happier, Budd challenges why we are still having conversations about moving beyond performance.

He tells Money Marketing: “I would like to think that in 10 years the kind of articles you are writing now won’t be needed anymore. Why are we still talking about it?

“I first started talking about using coaching skills seven years ago. Yet there are still many thousands of financial advisers who are boring the crap out of their clients by talking to them about their money. Why are we still having this conversation? Things need to change.”

But he acknowledges there is a “wave of people” coming through who do understand the benefits of coaching skills.

Budd says: “I really do believe if there are advisers out there who haven’t got with this yet, fairly soon there is going to become a tipping point when they are going to start to really lose out.”

One such adviser in that wave of people who has grasped the importance of value is founder of Oakmere Wealth Management and St James’s Place partner Carla Brown.

Her firm prides itself on building long-term relationships with clients and considers implementing a financial plan as “only the start” of the relationship.

Getting the value message across is particularly important to the inaugural winner of SJP’s chartered planner of the year. Having based her dissertation on the topic for her chartered exams, she certainly knows a thing or two about value.

After handing over the chartered planner of the year baton to Adam Johnson, director of New Forest Wealth Management, at SJP’s annual chartered symposium on 30 January, Brown sat down with Money Marketing and shared some of her views.

Looking beyond returns

She said: “Typically the value an adviser gives is the equivalent of 1.8 to 3 per cent per annum in terms of returns, but it’s about much more than returns. We are going through a procedure now where we are rewording some of our processes. An annual review meeting with the client these days shouldn’t be about reviewing what’s happened and performance; it should be less about the numbers and more about the aspirations and where they want to get to – it’s about what’s actually important to the client.

“I firmly believe in lifestyle financial planning. So the conversations we have with clients now are ‘OK, this is your plan and this is where you want to get to, so how do we get you there?’ And it’s adding the value from that perspective. It’s something more tangible for them.

“A huge chunk of what we do is behavioural coaching, helping clients understand markets and understanding what it means to them, and making sure we’re implementing tax angles and adding value that way. A lot of clients just like to know we are there. It’s having that actual person that you can phone. Some of the calls and emails we get are nothing to do with financial planning, but we’re their first port of call, which I think is great. It comes down to trust.”

People will often find themselves in need of sound financial advice during some of the most difficult times of their lives. From going through a divorce to a death in the family, financial advisers need to know how to deal with people and the range of emotions they may be going through.

Delve a little deeper

For Budd, advisers have a “duty” to look behind the reasons why a person has come to see a financial adviser in the first place.

He says: “If you can help somebody, not only to solve their real issues but go one step further and help them find futures they didn’t even know were possible, you are going to get not just loyal customers, but actual ambassadors.”

Clients may say they have come to discuss an aspect such as reviewing their pension, but advisers should delve further, Budd suggests.

One of the ways that advisers might break down the perceptual barrier that they only care about stock markets is through increasing their focus on protection conversations.

Investment portfolios in decumulation have got smarter around how they safeguard income, with how to segment pots, manage returns over the life cycle, maintain enough cash reserves and make smooth income payments moving up the agenda.

But all the time and expertise spent on developing a great investment plan can be made redundant should the worst happen. Since the RDR, the average wealth of advised clients has increased, as has the average age. This means the financial planning profession is facing a client bank with protection needs increasing from two different sides; it is likely more business owners and entrepreneurs will be reliant on volatile incomes from their companies, and the older clients are likely to have more health and inheritance issues that need addressing.

Smallest disconnects between investors and advisers

  • Communicates and explains financial concepts well
  • Presents themselves in a professional manner
  • Helps me reach my financial goals

Largest disconnects between investors and advisers

  • Can help me maximise my returns
  • Helps me stay in control of my emotions
  • Understands me and my unique needs

Source: Morningstar

Creating a robust plan

If the value really is in the plan, not the product, shouldn’t advisers be ensuring that the plan stays on track and can weather shocks?
Using words like ‘holistic’ or ‘life planner’ naturally tends to focus on the wider impact of emotions on money.

Protection can tackle those tough questions about making sure loved ones are looked after or ensuring a legacy remains for a life’s work. Some progressive planners argue that a planner shouldn’t really call themselves holistic at all if they aren’t comprehensively reviewing a client’s protection needs. While some products may not produce the highest commission or income for an adviser, they are a revenue stream that you can tell a client isn’t related to how well investments perform.

Ian-FutcherAdviser view

Ian Futcher

Financial adviser at Quilter Financial Advisers

It’s becoming increasingly important for advisers to demonstrate the value we provide to clients. With Mifid II clients can see the pounds and pence cost of advice and when there is a drop in the markets some clients may question why they are paying these charges and what they are getting for their money.

Then you have the allure of cheaper do it yourself investing and robo-advice. But those alternatives can’t offer a true, holistic financial plan to help clients on their journey to the outcome they desire.

They can’t talk a client through the various tax allowances they could utilise, and they don’t tend to treat clients as individuals.

Financial planning is a very bespoke personal service that will vary from person to person. Robo-advice doesn’t necessarily distinguish between individuals, if we look at retirement planning as an example the majority of clients may want to retire at 65, but how they want to spend that retirement will vary from person to person.

One client may not want to do much, they may be pleased to just have more time to focus on their hobbies such as gardening but another may want to go on a cruise every so often.

In a standard fact-find we could look at retirement planning by considering current outgoings, expected income at retirement, calculate any potential shortfalls and recommend saving more money if needed probably similar to robo-advice.

But if we go a step further by asking a simple question such as what retirement looks like to the client, you soon see how unique that is to each person.

Knowing more about the individual and their soft facts you can look at a more bespoke plan and cashflow modelling and show the client how achievable their particular plan is.

And it goes above that. We must make our clients aware that the investments we choose and place their funds in are just a tool of the overall plan.

When a client’s circumstances change advisers can see how those changes are going to affect their current provisions or tax liabilities.

We can make sure their assets are in the right ownership and tax shelters. Meaning the client legally and ethically isn’t paying more tax than necessary.

It is offering our clients true holistic financial planning, meeting with them regularly, amending the plan as their life situation changes or external factors change. If we do all of that it shouldn’t matter if the markets go up or down. Our clients should be in it for the whole journey.

We’re seeing an increasing number of robo-advisers failing as the companies behind them struggle to make the model work.

Clients often go to a financial adviser when they are going through a difficult time. And as an industry we must strive to make the public aware of the benefits and the value we can bring all the time, not just when they have a problem.

Teasing out the truth

Many advisers are looking to set this up in the early stages of a fact-find. Using the kind of open questioning and behavioural economics prized by financial wellbeing rather than investment-focused advisers naturally tends towards teasing out true protection needs. Ask ‘How much money do you want in retirement?’ or ‘How much risk are you willing to take?’ and you might get a drawdown rate figure. Ask ‘What do you want to achieve with your money?’ or ‘What’s your biggest financial fear?’ and you might get an answer about making sure children are looked after, or not having to sell the house in the event of ill health.

Technology providers have also been on a path towards evolution, as the likes of iPipeline build on what were previously simpler price comparison tools into ones where advisers can also readily compare the quality of different policies.

Embark Group chief executive Phil Smith believes we will hit what he calls “behavioural finance wars” in the next five years. He tells Money Marketing: “We’re in a world where historically suitability has been about an attitude to risk score for a client off a lame questionnaire, attached to a risk rating of a fund or model. It’s a matching exercise of convenience in the main.

“People who understand behavioural finance and all that stuff will tell you it’s a flawed model because of a single dimension and it’s not taking into account a whole bunch of other factors around human behaviour which influence suitability.

“Many of these factors are in conflict with each other and it’s the amalgamation of multiple dimensions that gives you true suitability and insight into a client, and the ability to match an investment product and liquidity product alongside that need and to manage through those conflicts well.

“If you match that back to advisers and their role, and this trusted relationship and value added, I think we will see a competitive advantage from those advisers who can give genuine behavioural insight to a client.”

He adds: “That’s not denigrating the IFA world, because a lot of the best advisers do that almost unconsciously. But tool enablement of that with insight and matching is going to become a major feature of not only the advice space, but all distribution of investment products over the next three or four years. And we certainly want to be a part of that because I think it’s really important.

“We’re about to enter behavioural finance wars – I think that is the real key. There is a really interesting generational shift. The old players in that attitude to risk space are not going to be the players in that world when we look forward to three or four years’ time. A whole map of directional change is going to happen.”

Smith says financial planning is a different skillset to seeking an investment product. He explains there has been significant change in the adviser community over the past few years and “it’s only going to intensify” in the next five to 10 years.

The ’15 attributes of an adviser’ survey

  • Helps me stay in control of my emotions
  • Has a good reputation and positive reviews
  • Is knowledgeable on tax consequences of investing
  • Can help me maximise my returns
  • Is approachable and easy to talk to
  • Helps me reach my financial goals
  • Is easy to get hold of
  • Has a clear fee structure so I know what I’m paying for
  • Understands me and my unique needs
  • Uses up-to-date technology
  • Acts as a coach/mentor to keep me on track
  • Presents themselves in a professional manner
  • Keeps my interests in focus with unbiased advice
  • Communicates and explains financial concepts well
  • Has the relevant skills and knowledge

 Source: Morningstar

Costs come second

Meanwhile, in a recent article for Money Marketing, Paul Armson, founder of the Inspiring Advisers Lifestyle Financial Planning Online Coaching Programme and co-founder of Life Centered Planners, put forward the case for why clients need to understand the value of proper financial planning before worrying about costs.

He said: “Disclosing your fees could be a good idea if you’re a product- or investment-focused adviser looking to attract enquiries from anybody and anywhere, who wants to transact a financial product or investment, probably at the lowest possible price. If you like to engage in tedious conversations about performance, charges and product features, then enjoy.”

And at a Transparency Task Force conference towards the end of last month LEBC director of public policy Kay Ingram told delegates “price alone does not equate to value”.

She said: “As well as the monetary cost of the service, many consumers have constraints on their time, so efficient service delivery can be as important as price. Firms need to segment their services so that clients have a choice of service levels and a delivery method to suit their needs. Firms can use technology to increase the productivity of their advisers, save time and money for their clients, and increase access to regulated advice.”

Expert view

Chris Budd

Chairman of Initiative of Financial Wellbeing

Financial advice should be based around how to make someone happier. What is the point of your advice if someone isn’t happier at the end of it? You should be able to prove that you have made them happier somehow.

If the conversation is just about tax and investments then you’re not even moving into the subject of happiness, you’re not going to be able to prove it and the client won’t be happier.

For future proofing your business – if you sell yourself on the basis of investment or on technical knowledge, or even worse on price then you are enabling your client to compare you with other people.

If you talk to clients about their happiness, their wellbeing, if you use coaching skills to help them understand and create a plan to get to that life then you are creating a much deeper, personal relationship with a client which is not something that can be compared with other people.

Your relationship with your client will be on a much more personal basis therefore a much stickier basis in terms of keeping that client for the long-term.

If you create a solid relationship and you keep your client, everything else flows from there. You will get the investment management, you will get all the pensions advice, etc, etc. If you do the coaching first everything else follows.

The issue is advisers are trained to find solutions, and they are trained to find technical solutions with their CII training. That’s all well and good but if that’s all you’ve got to talk about then that is all you will talk about. And if that’s all you will talk about that is all the clients will listen to and hear. So therefore, you will never have a different conversation. This assumption that clients don’t want financial coaching, that they don’t want to talk about their happiness is absolute rubbish. It’s just it’s not what we talk to them about.

If we talk to people, not about their money but about how their money can be used to make them happier then you are far more likely to get an engaged client who is going to listen to you.

If you talk them through benchmarking of individual funds or investment portfolios they are going to glaze over and probably go and look elsewhere eventually.

Financial wellbeing: Inside the movement to make clients happy, not just wealthy

AJ Bell chief executive Andy Bell suggests the Woodford debacle was an opportunity for advisers to shout about their worth as well.

He tells Money Marketing: “The Woodford affair was the ideal time for advisers to really demonstrate the value of the service they provide. The majority of customers still in the Woodford funds when they suspended are likely to have been DIY investors. Most advised clients would have sold out of the funds before the suspensions, either because the adviser recommended them to do so or the outsourced investment service the adviser uses saw the problems coming down the line.

“Advisers may have pointed out to their clients that they dodged a bullet, but it’s times like this when advisers really earn their fees and the value of advice shines through.

“What is interesting is if this has made more advisers think about the perils of picking and monitoring funds themselves.

“Many have already outsourced investment management and have chosen to add value through financial and broader life goal planning. While this doesn’t abdicate their responsibility for investment suitability, it does change the nature of conversations that advisers have with their clients, which will be focused on goals, time horizon and risk-reward, rather than the merits of individual fund managers.

“Those that have not already made that transition may decide that the Woodford episode is enough of a catalyst to consider changing.”

Budd highlights the Woodford fallout as an example of clients not being interested in investments. He says: “At Ovation we had hardly any calls about Woodford because clients aren’t interested. If ever there’s proof needed that clients are not interested in investments and money, then that was it. We are interested because we are trained to be. We find it interesting and therefore we think clients are going to too.

“But if I read in the paper that Neil Woodford has cocked up and his fund has gone downhill, the last thing I want to get is a phone call from my adviser telling me all about it.”

Show your true value

While that may not be the case for every client, it is clear advisers need to take the opportunity to demonstrate their true worth to clients whenever they can.

If the industry is having the right conversations among itself but falling back into old habits with clients and going down the same well-trodden road, then the time for simply talking is over.



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